Interview: Ou Yan of China Telecom Europe

The head of China Telecom's small but fast-growing business in
Europe, based on its competitive terrestrial routes across
Russia, says he is looking for opportunities to invest in IT
services to support its work with enterprise customers. Ou Yan
talks to Alan Burkitt-Gray

Ou Yan, China Telecom: land route between Europe and Asia
is faster and more reliable, but more expensive at the
moment

Latency from London to Beijing via China Telecom's routes
across Russia is
just 180 milliseconds, says Ou Yan, compared with the sea
route's 240 ms

China Telecom is looking for investment opportunities in
Europe, mainly IT companies that it can use to enhance its
service to business customers and to expand its overall
operations.
So far the company’s fast-growing European
offshoot is some way from making any bids, but its managing
director Ou Yan says it is "prospecting" for potential
acquisitions. "We have started discussions."
But, in his interview with Global Telecoms Business, he was
reluctant to say whether his Beijing head office has allocated
him a budget. "It is too early to say that."
China Telecom Europe is the smallest of three international
arms of the giant home-grown Chinese company, the others being
the Hong Kong unit, its venture in the Asia Pacific, and China
Telecom Americas, based in Washington DC but about to set up in
Latin America.
All are small compared with the home company in mainland China,
with 181 million fixed-line customers and 74 million mobile
customers, all on the CDMA network that China Telecom took over
from China Unicom in 2008. The mobile business is growing
strongly, at about 3 million a month, though the fixed market
in China is falling — as it is in many parts of the
world. In June 2010 China Telecom lost 890,000 fixed lines.
As with many large operators, China Telecom’s
international operations were started to serve home enterprise
customers in foreign markets.
It also serves non-Chinese customers wanting service into the
Asia Pacific region. Here, China Telecom has a significant
advantage over many: terrestrial connections between Asia and
Europe across the vast Russian landmass. These are more
expensive but much faster than the routine connections by sea,
along the Mediterranean, through the Red Sea, and across the
Indian Ocean.
"Latency from London to Beijing is 180 milliseconds," says Ou,
who set up the European operation in 2006. That compares with
240 milliseconds by the submarine route.
"Carriers need fast and reliable solutions," says Ou.
Reliability comes from the absence of subsea earthquakes, which
have caused a number of disruptions over the past few years, or
from ships dragging anchors, which have caused even more.
Earthquake disruption

The Hengchun earthquake in December 2006 just off the south
coast of Taiwan interrupted five submarine cables. "During that
time our trans-Russian network was unaffected. Tier one
carriers asked us to provide connections between London and
Hong Kong within five days. We took three says," smiles Ou. "It
creates confidence among our partners. Since then our product
has been accepted."
China Telecom uses a number of land routes across Russia,
working with a number of operators, including Rostelecom and
TTK as cable systems providers and Sistema and Megafon among
strategic partners. The company has another connection via
Mongolia and is planning a further link across Kazakhstan.
"The price is a little bit higher than for submarine cable but
it is more reliable and there is a short roundtrip latency,"
says Ou. "Our customers are not the mass market. Most are
carriers that are not price sensitive. We still have the
pressures of the market — we are not the unique
carrier on the route. But others cannot provide a total
solution."
China Telecom’s traffic across Russia is now
running at 50 gigabits a second. "We started with one STM 4
circuit in 2006," says Ou. That’s 155 megabits
— so the traffic has grown 300 times.
Once all four routes "we can reduce the cost and get more
market share", he says.

About 50% of the company’s revenue comes from
wholesale and 50% from enterprise customers, he says, though in
sheer numbers enterprise represents 80% of the customers. Of
them, Chinese companies are about half that total.
Coverage in the Europe, Middle East and Africa market includes
Johannesburg in South Africa and Dubai in the Gulf, as well as
a number of European cities — Paris, Frankfurt,
London, Moscow, Stockholm and Helsinki: the last two are
explained by a contract with a large Scandinavian telecoms
manufacturer to provide connections to its Chinese factories.
"They have recently upgraded their system," he notes.
But it’s a two-way market, as "a lot of Chinese
enterprises are going out and investing in the Middle East and
Africa". The POP in Dubai serves north Africa "and we plan to
set up an office in Johannesburg — it’s a
communications hub for many African companies."
Equipment in Russia and Mongolia is provided by China
Telecom’s telecoms partners. "In our POPs we use
Huawei and Cisco," says Ou.
In addition, the group’s Hong Kong sister company
has six or seven points of presence in the Asia Pacific market
outside mainland China. "We have very strong coverage in the
region — and China too of course."
International expansion

China Telecom’s move around the world started in
2000 when Ou was in the Beijing headquarters —
responsible for heading the company’s
international expansion strategy. It started in the US,
initially to reduce the cost of linking into the internet.
"With our own presence in the US we could use our own
facilities on submarine cable systems."
After creating its Hong Kong operation China Telecom set up its
European office. "I was in the headquarters and I told them to
do this," says Ou. "We have a very good relationship with
headquarters. We have told them we need to expand business in
EMEA. They know us very well. We follow our customers." Hence
the two POPs in Scandinavia.
So how does he see China Telecom developing internationally?
"We need to expand our product line, providing competitive
solutions and applications such as conferencing. But also
disaster recovery — very important for the finance
sector. That’s one reason we have two POPs in
London, one in Docklands and one in the west."
Data centres "are not a huge priority for us" though, he says.
"They are a huge consumer of electricity and right now we are
looking at low-carbon operations and environmental protection."
But the company is looking at ways of providing "total
solutions to our end customers", including IT solutions: "not
only software but applications such as video conferencing,
network security and internal networking. We have to move up
the value chain to provide more ICT solutions to add value."
How does China Telecom plan to do this in the EMEA region? "We
need more local staff to work with local customers," says Ou.
They need to understand the local culture. "Chinese enterprises
know us well but for locals it’s a different
story."
It seems that what Ou really aspires to do is compete not just
for business with large companies but at a smaller scale too.
"It is a big challenge," he accepts. "How does the customer
know us and understand us?"
Enterprise customers

The company is planning to start off by holding a series of
seminars in the EMEA region, in cities such as London and
Frankfurt, for potential enterprise customers "to show them
what we’re doing here, to show our products. And
for existing customers to show them how they use China
Telecom."
It is, he emphasises, mid-size customers that China Telecom
will be aiming for in the region.
Meanwhile China Telecom Americas is also expanding, from its
initial base in Virginia, near Washington DC, to Canada and
Brazil this year.
For Ou it’s a continuing challenge. "I have driven
the international business for a long time," he says. "Driving
business in Europe is very important. It’s not
just pricing but how to serve your customers. The service
culture is very important. Service quality is delivered by
people, so all people — not just the front line staff
but the back office — must have the same loyalty to
the customers."
The European business is still small, but growing fast
— from £2.2 million in 2007 to a probably
£11 million this year. "Every year we’ve
shown an increase of more than 50%."
And he’s clearly ambitious for growth to continue.
That’s why he is looking for ways to expand. "My
focus is on the existing company," he says. But
he’s looking around for opportunities to grow
faster. GTB